Chapter 5 - Corporate governance

Senior management committees and their roles

The Defence Committee, chaired by the Secretary, Mr Dennis Richardson AO, is the primary decision-making committee in Defence. The Defence Committee is supported by the Enterprise Business Committee and the Investment Committee. The Enterprise Business Committee, chaired by the Associate Secretary, Mr Brendan Sargeant, is responsible for monitoring the in-year performance of Defence, while the Investment Committee, chaired by the Vice Chief of the Defence Force, Vice Admiral Ray Griggs AO CSC RAN, is responsible for future investments and maintaining the integrity of the 2016 Integrated Investment Program.

The Defence Audit and Risk Committee, chaired by external member Mr Paul Rizzo, provides robust, independent advice to the Secretary and the Chief of the Defence Force on all aspects of governance and risk management within Defence.

A range of other senior committees focus on specific functions or issues. In accordance with the First Principles Review, the number of senior committees was reviewed, resulting in a reduction in the number of committees.

These streamlined governance arrangements are about providing clear direction, understanding the risks to Defence achieving its purposes, monitoring Defence’s performance in delivering on government requirements, and increasing the transparency of decision making and reporting in Defence.

Performance and accountability

The Public Governance, Performance and Accountability Act 2013 (PGPA Act) obliges all Commonwealth officials to apply sound governance practices and procedures in their day-to-day work.

Governance in Defence is the set of responsibilities and practices, policies and procedures exercised by the Secretary to provide strategic direction and ensure that objectives are achieved, risks are managed and resources are used responsibly and with accountability.

Good governance comprises both:

performance—how Defence manages its overall performance and the delivery of goods, services or programs

compliance—how Defence ensures it meets the requirements of the law, regulations, published standards and community expectations of probity, accountability and openness.

In Defence, this requirement is managed through the Enterprise Performance Management Framework, which was endorsed by the Defence Committee on 23 May 2016. The framework has a number of key outputs, which are detailed below.

Defence corporate plan

The Defence corporate plan sets out the Defence purposes, as defined by the PGPA Act, and describes the activities to be undertaken and intended results to be delivered to meet Government policy requirements. The plan has a four-year outlook, is updated at least annually and is published in the public domain. The 2015–16 Defence Corporate Plan was published on 28 August 2015.

The Defence Portfolio Budget Statements and Portfolio Additional Estimates Statements are the portfolio minister’s documents that detail the allocation of public resources to Defence to achieve Government policy priorities. The Portfolio Budget Statements describe the outcomes and programs Defence will deliver over the coming financial year, including how Defence is expected to perform in delivering those outcomes and programs.

Defence business plan

The Defence business plan is the internal enterprise management plan that provides all Defence personnel with guidance about the priority activities and intended results Defence must achieve to meet Government policy direction. The business plan aligns with the One Defence business model and requires different parts of Defence to work together to achieve enterprise outcomes. The business plan assigns accountability for delivering whole-of-Defence outcomes to a single accountable officer. The accountable officer is expected to work with relevant responsible officers to deliver the intended results described in the plan.

Defence performance report

The internal, classified Defence performance report provides the Defence senior committees with an update on Defence’s progress towards achieving the intended results in the Defence business plan and other enterprise-level plans. The report also monitors enterprise-level risks and provides Defence’s leadership team with the information they need to make risk-informed decisions about Defence’s enterprise strategy and focus, including early identification of issues that may require intervention.

Defence annual report, including annual performance statements

The Defence annual report is a principal formal accountability mechanism between Defence and Parliament and is a requirement of the PGPA Act. The annual report provides an important historical record of what return on investment—or value—Defence delivered to Parliament and the Australian community over the reporting period. From 2015–16, Defence is required to include annual performance statements in the Defence annual report, in addition to financial statements. The annual performance statements can be found in Chapter 3—Annual performance statements.

Risk management

Risk management is undertaken in accordance with the Defence risk management framework, which provides:

transparency of risk management within the business units of Defence

a structure to draw out accountabilities and responsibilities of shared risk of the business units across the department

a collective frame that articulates accountabilities and responsibilities for risk shared with Commonwealth, industry and international partners.

Through this framework, Defence addresses risks at three levels:

operating risks—These are risks to Defence achieving efficient and effective operating intent. They are the inward focus of how Defence undertakes the activities outlined in its business plan.

enterprise-level risks—These are events that may limit or compromise Defence’s collective ability to meet the obligations and requirements set by the Government. These risks may arise from four ‘enterprise vulnerabilities’, which are:

integration across Defence

integration with key external partners

compliance with legislation and government policy

efficient and effective use of resources.

national security risks—These are risks managed as shared risks with Commonwealth, international and industry partners. Understanding of the national security risk environment informs the risk tolerance for enterprise risks.

Defence senior management exercises high-level risk oversight and assurance. The Defence Audit and Risk Committee provides the Secretary and the Chief of the Defence Force with independent advice on all aspects of Defence governance, including implications arising from Australian National Audit Office audits and Joint Committee of Public Accounts and Audit reports.

Compliance with finance law

During 2015–16, Defence reported 58 instances of significant non-compliance with finance law proven as fraud committed by an official and addressed by Defence authorities through criminal, disciplinary or administrative action. Significant fraud cases are also reported separately to the Minister for Defence in accordance with reporting requirements set out in the Commonwealth Fraud Control Framework. Strategies for minimising instances of fraud are outlined below.

Fraud and ethics

In accordance with the Commonwealth Fraud Control Framework 2014, Defence continues to meet its mandatory obligations to prevent, detect, and deal with fraud. Defence has a comprehensive fraud control program established through the Defence Fraud Control Plan No. 11.

Defence uses a range of strategies to manage fraud, including:

a rigorous and dynamic fraud risk assessment program focusing on enterprise-wide vulnerabilities and risk factors within a diverse operating environment

A key objective for establishing a strong ethical culture is to identify, understand and manage fraud and corruption risks. The Defence Ethics and Fraud Awareness Program continues to be an integral part of Defence’s fraud control program. The program comprises the following activities:

an instructor-led training package and an e-learning course, completed by more than 69,000 personnel in 2015–16

a biannual Ethics Matters newsletter

an intranet site for information and advice.

Corruption prevention

Addressing corruption risk and integrity are areas of focus for Defence as the department seeks to understand the changing threat and risk, and adapt its strategies accordingly.

Defence is committed to deterring and preventing corruption, and will be implementing an integrated fraud control and anti-corruption plan in early 2017.

Investigations

In 2015–16, there were 246 fraud investigations registered within Defence, with 229 investigations completed during the year (some of those completed were registered in previous years). Approximately 29 per cent of completed investigations resulted in criminal, disciplinary or administrative action. Of these, around 15 per cent related to disciplinary action under the Defence Force Discipline Act 1982.

In 2015–16, the determined fraud loss for completed investigations was $535,766, while monies recovered amounted to $202,879. Table 5.1 shows detected fraud over the past five financial years, averaging approximately $870,000 per year within a range of $480,937 to $1.4 million.

Table 5.1: Determined fraud losses and recoveries, 2011–12 to 2015–16

2011–12
($)

2012–13
($)

2013–14
($)

2014–15
($)

2015–16
($)

Loss

1,102,979

835,685

1,400,4221

480,937

535,766

Recovery

493,210

393,902

133,457

161,693

202,879

Note:

1. The determined fraud loss for 2013–14 has been adjusted since the last annual report to take into account a case where $370,000 was incorrectly reported as a fraud loss.

Audit

Audit Branch provides assurance to the Secretary and the Chief of the Defence Force that controls designed to manage Defence’s major risks are in place and are operating effectively. Through the provision of audits, reviews and Management Directed Tasks, a systematic and disciplined approach is adopted to evaluate business performance, as well as ensure strategic and operational risks are addressed.

During 2015–16 Audit Branch provided internal audit services in accordance with the audit work program, which is developed in consultation with Group Heads and Service Chiefs. The program is endorsed by the Defence Audit and Risk Committee and approved by the Secretary and the Chief of the Defence Force. It is designed to address areas of high-level risk, or activities with potential control deficiencies, that could lead to significant operational or financial loss, exposing Defence to serious reputational damage.

Audit Branch also monitors the status of the implementation of recommendations from Audit Branch and Australian National Audit Office reports, and reports its findings to the Defence Audit and Risk Committee and the Enterprise Business Committee.

Additionally, Audit Branch is the primary point of contact for, and is responsible for the coordination of, Australian National Audit Office performance audits in Defence.

In 2015–16, Audit Branch issued 17 audit reports and completed 13 Management Directed Tasks. Further, six Australian National Audit Office performance audits on Defence, and two cross-portfolio audits involving Defence, were completed, to which Audit Branch provided direct support. Further details are available in Chapter 6—Assurance.

Exercise of the Defence Minister’s powers pursuant to Division 1AA of the Customs Act

In accordance with the requirements of section 112BC, within Division 1AA of the Customs Act 1901, the Minister for Defence must table a statement on the exercise of the Minister’s powers under Division 1AA of the Act for each preceding year.

For the period 1 July 2015 to 30 June 2016, the Minister for Defence did not exercise the powers pursuant to Division 1AA of the Act.

For the period 1 July 2014 to 30 June 2015, the Minister for Defence exercised the powers pursuant to Division 1AA of the Act on one occasion. A statement was not provided to Parliament for this period.

Report of the Inspector-General of the Australian Defence Force

The position of Inspector-General of the Australian Defence Force is established under section 110B of the Defence Act 1903. The Inspector-General of the Australian Defence Force provides the Chief of the Defence Force with a mechanism for internal audit and review of the military justice system, independent of the chain of command, and an avenue by which failures in the military justice system may be examined and remedied. Since 1 July 2014, the Inspector-General of the Australian Defence Force has also been responsible for inquiries into service deaths and the internal review of military redress of grievance decisions.

The operating tempo in the Office of the Inspector-General of the Australian Defence Force remained relatively high in 2015–16. Over the reporting period, the office conducted investigations and inquiries into submissions concerning the military justice system, conducted military justice performance audits, reviewed and processed redress of grievance complaints made by military members, and investigated and inquired into service related deaths.

During the reporting period, the Inspector-General of the Australian Defence Force received 67 inquiry submissions, an increase of approximately 8 per cent on the previous period. In recent years, the trend has been that submissions disclose issues of greater complexity than in previous years, and this continued in 2015–16. The Inspector-General of the Australian Defence Force resolved 58 submissions by way of inquiry, assessment or review in 2015–16.

In addition to these inquiry submissions, the Inspector-General of the Australian Defence Force reviewed 41 Service Police professional standards matters. Of these, 28 became the subject of Inspector-General of the Australian Defence Force investigations and four were referred back to Service Police for further action.

The Inspector-General of the Australian Defence Force conducted 41 ADF military justice unit audits, representing approximately 10 per cent of all auditable Australian Defence Force units. In two of those units, potential material deficiencies were identified. These units will be re-audited within 12 months. In all, approximately 900 recommendations and suggestions to improve military justice arrangements, practices and procedures were made during 2015–16. The overwhelming majority of the recommendations and suggestions related to minor compliance or procedural issues.

During the conduct of military justice unit audits, 2,492 ADF personnel participated in focus group discussions, raising the total number of focus group participants to 29,779 since the pilot program first commenced in 2004. Focus group survey outcomes in 2015–16 indicate a stronger endorsement of, and confidence in the military justice system and the chain of command to take action to resolve military justice problems. There was evidence to indicate that incremental cultural change under the Pathway to Change: Evolving Defence Culture strategy, announced in 2012, continued to occur within the ADF during the reporting period.

Select incident review

Through the Directorate of Select Incident Review, the Inspector-General of the Australian Defence Force conducts reviews of deaths in service, including those occurring on operations. The Inspector-General of the Australian Defence Force may choose to conduct a formal inquiry into a death or any other select incident.

After notification of a death from the Navy, Army or Air Force, the Inspector-General of the Australian Defence Force reviews the circumstances of each death and provides written advice to the Chief of the Defence Force as to whether the death appears to have arisen out of, or in the course of, the member’s service. These reviews and any formal inquiry by the Inspector-General of the Australian Defence Force are conducted independently of the chain of command, with the findings and recommendations reported to the Chief of the Defence Force.

The reviews examine compliance with Defence policies and procedures and, where appropriate, will make recommendations to the Chief of the Defence Force to improve Defence’s policies and procedures.

The Defence (Inquiry) Regulations 1985 oblige the Chief of the Defence Force to appoint a Commission of Inquiry into the death or suicide of a member of the Australian Defence Force that appears to have arisen out of, or in the course of, the member’s service, unless the Minister for Defence specifies in writing that the circumstances do not require it. The Defence Act 1903 has been amended to provide an express legislative basis to create regulations under which the Inspector-General of the Australian Defence Force can conduct this review function.

In 2015–16, the Inspector-General of the Australian Defence Force initiated 41 reviews of deaths in service of Australian Defence Force members, and established four formal inquiries into Australian Defence Force member deaths.

Military redress of grievance

In 2015–16, there were 392 new applications for redress of grievance received, which is equal to the previous year (Figure 5.1). There were also 392 applications that were finalised at unit level, a portion of which had been received during 2015–16, while others were received in previous reporting periods. Of the 392 finalised in 2015–16, 272 (69 per cent) were not granted, withdrawn or not reviewable. The other 120 were granted or partly granted. The primary focus of complaints remains termination of service decisions, career management issues, and conditions of service entitlements.

A proportion of members who are dissatisfied with the decision of their commanding officer refer their complaint to their Service Chief or to the Chief of the Defence Force for further review. Historically, approximately one-third of redress of grievance applicants exercise this entitlement. In 2015–16, there were 89 grievances referred to Service Chiefs and 17 referred to the Chief of the Defence Force. These referred grievances may have initially been submitted at unit level in previous years, and some unit-level grievances received in 2015–16 may be referred to Service Chiefs or the Chief of the Defence Force in future years.

Pursuant to section 110R of the Defence Act 1903, the Inspector-General of the Australian Defence Force prepares an annual report on the operations of the Office of the Inspector-General of the Australian Defence Force for the Minster for Defence, for presentation to the Parliament, at the end of each financial year.

Figure 5.1: Redress of grievance applications received and finalised, 2013–14 to 2015–16